Construction of the arbitration clause

The relatively new Supreme Court judge Justice Davies has provided a useful overview on the law in Victoria on the construction of arbitration clauses in 1144 Nepean Highway Pty Ltd v Leigh Mardon Australasia Pty Ltd [2009] VSC 226.  Her Honour found the clause meant what it said, and stayed the proceeding which had been instituted in contravention of it. Here is her Honour’s summary of the law:

’13 In my opinion the issues that the plaintiff raises for determination in this proceeding come within the dispute resolution procedure in clause 12 of the agreement for lease and the plaintiff is obliged to use that procedure to have the dispute resolved, unless the Court in its discretion refuses to stay the proceeding.

14 The relevant words of the clause are:

If a dispute or difference arises or the parties fail to agree in connection with any matter arising out of or relating to this agreement… (emphasis added)

15 The clause is capable of a very wide construction on the language used. The authorities indicate that the language should not be read down but be given the wide construction that the language permits and should be construed on its terms. The courts, generally, have taken a liberal approach to the construction of such clauses because the subject matter is dispute resolution. As the High Court stated in PMT Partners Pty Ltd (in Liq) v Australian National Parks and Wildlife Service[1] “the subject matter … compels an approach which treats [the] clause as requiring the parties to have their disputes decided in accordance with the procedures specified – and only in accordance with those procedures, unless there is something which clearly indicates to the contrary”.[2] Such clauses should be given a construction that avoids different dispute resolution processes having to be followed depending on the issues in dispute between the parties. A liberal construction ensures that a dispute is able to be dealt with in its entirety by the dispute resolution procedure agreed on and also ensures that the clause is given full effect.[3] In Incitec Ltd v Alkimos Shipping Corporation[4] Allsop J observed, after reviewing authorities, that “[t]he clear tide of judicial opinion as to arbitration clauses, where the fair reading of them is not confined, is to give width, flexibility and amplitude to them.”[5] Gleeson CJ explained the rationale in Francis Travel v Virgin Atlantic Airways Ltd:[6]

When the parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.[7]

Thus, the approach to construction should be to give effect to the intention of the parties as expressed, unless there is something which clearly indicates that the ambit of the clause should be limited in some way.

16 On its terms, the language of clause 12.1 is wide enough to cover all the issues in this proceeding. The words of the clause themselves “lead one to conclude that what was intended was a reach of some width and liberality”.[8] I do not accept that questions about the termination or existence of the agreement or entitlement to the equitable relief that the plaintiff seeks are not within the ambit of the language of clause 12. The words used in clause 12 are of the widest import and should be given their full meaning.

17 In Heyman v Darwins Ltd[9] the House of Lords gave a very wide construction to an arbitration clause which specified that “[i]f any dispute shall arise between the parties hereto in respect of this agreement or any of the provisions herein contained or anything arising hereout the same shall be referred to arbitration in accordance with the provisions …” and held that a dispute about whether a contract had been repudiated was within the scope of the arbitration clause. Viscount Simon LC stated:

… in a situation where the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them whether there has been a breach by one side or the other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as differences which have arisen “in respect “of,” [sic] or “with regard to,” or “under” the contract, and an arbitration clause which uses these, or similar, expressions should be construed accordingly.[10]

18 In Francis Travel v Virgin Atlantic Airways[11] the issue was whether the appellant’s claim that the purported termination of an agency agreement was wrongful by reason of the alleged conduct of the respondent involving representation, estoppel and misleading conduct in contravention of the Trade Practices Act 1974 gave rise to a dispute or difference “arising out of” the agency agreement and thus whether an arbitration clause in the agency agreement covered the dispute. Gleeson CJ held that the claim was a dispute “arising out of” the agency agreement.

19 In Dowell Australia Ltd v Trident Contractors Pty Ltd[12] Yeldham J held that an arbitration clause which provided for reference to arbitration “as to any matter or thing whatsoever arising … in connection” with the contract included reference to matters such as frustration, rescission and rectification.[13]

20 Here the dispute between the parties as to whether the agreement has come to an end arises out of and is plainly interrelated with the dispute about the planning permit’s compliance with the conditions of clause 2.1 and the effect of clause 2.3. Whether the planning permit satisfied the conditions in clause 2.1 plainly is a matter “arising out of” the agreement to lease. Whether clause 2.3 applied to void the termination notice also is a matter “arising out of” the agreement to lease. Whether the agreement was terminated thereby is also a matter “arising out of” clause 2.3 of the agreement. If there be any doubt as to whether the question of termination is one that “arises out of” the agreement which, in my view, there is not, the issue plainly “relates” to the agreement, as do the equitable claims which similarly have a material connection with the agreement to lease to bring them within clause 12. In my view, there is no compelling reason to read down the width of clause 12.1 to confine it to disputes which do not raise any claim about whether non compliance with a term of the agreement has brought the agreement to an end.

Should the proceeding be stayed?

21 The plaintiff submitted that the proceeding should not be stayed in the exercise of the Court’s discretion. In Incitec Ltd v Alkimos Shipping Corporation[14] Allsop J at 565 identified the principles to be applied in deciding whether to stay proceedings brought in defiance of an exclusive jurisdiction clause. His Honour observed that the discretion not to grant a stay requires substantial grounds and is “not a matter of mere convenience” – “[t]he question is one of the exercise of a discretion in all the circumstances, but recognising that the starting point is the fact that the parties … should, absent strong countervailing circumstances, be held to their bargain”.[15]

22 It was submitted that as there is a real question as to whether the agreement has been terminated or not, there is a real question as to whether clause 12 continues to bind the parties. However, the termination of the contract, if that be the case, will not have brought the contract to an end for all purposes. The dispute resolution clause nonetheless binds the parties for the purpose of the dispute resolution process to be adopted to determine whether the agreement has been terminated.[16]

[1] [1995] HCA 36; (1995) 184 CLR 301.

[2] Ibid, 311-2 (Brennan CJ, Gaudron and McHugh JJ).

[3] PMT Partners Pty Ltd (in Liq) v Australian National Parks and Wildlife Service [1995] HCA 36; (1995) 184 CLR 301, 312 (Brennan CJ, Gaudron and McHugh JJ).

[4] [2004] FCA 698; (2004) 206 ALR 558.

[5] Ibid, 564.

[6] (1996) 39 NSWLR 160.

[7] Ibid, 165.

[8] Incitec Ltd v Alkimos Shipping Corporation [2004] FCA 698; (2004) 206 ALR 558, 564 [32] (Allsop J).

[9] [1942] AC 356.

[10] Ibid, 366.

[11] (1996) 39 NSWLR 160.

[12] [1982] 1 NSWLR 508.

[13] Ibid, 515.

[14] [2004] FCA 698; (2004) 206 ALR 558.

[15] Ibid 565-6 (Allsop J). See also Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334; Dance with Mr D Ltd v Dirty Dancing Investment Pty Ltd [2009] NSWSC 332 (Unreported, Hammerschlag J, 1 May 2009) [53].

[16] Heyman v Darwins Limited [1942] AC 334; Codelfa Construcion Pty Ltd v State Rail Authority of New South Wales ( [1982] HCA 24; 1981) 149 CLR 337.’

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